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BOISE - Idaho Gov. Butch Otter worked some budget magic to trim the state’s looming shortfall for the coming year down to manageable size and avoid calling for any tax increases, in the budget he unveiled to state lawmakers Monday. They were skeptical, however, because Otter’s plan relies on modest economic growth in the remainder of this year and into next year - and lawmakers aren’t convinced it’ll happen. “I hope that he’s right,” said House Speaker Lawerence Denney. “I would love it if we can make it work with what he’s given us.” Rep. Maxine …

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Idaho Gov. Butch Otter gives his State of the State address to a joint session of the Idaho Legislature on Monday.(Full-size photo)

BOISE - Idaho Gov. Butch Otter worked some budget magic to trim the state’s looming shortfall for the coming year down to manageable size and avoid calling for any tax increases, in the budget he unveiled to state lawmakers Monday.

They were skeptical, however, because Otter’s plan relies on modest economic growth in the remainder of this year and into next year - and lawmakers aren’t convinced it’ll happen.

“I hope that he’s right,” said House Speaker Lawerence Denney. “I would love it if we can make it work with what he’s given us.”

Rep. Maxine Bell, R-Jerome, co-chair of the Legislature’s joint budget committee, said “We are not out of this year yet. … One robin does not a spring make.” She said, “I’m not even cautiously optimistic.”

Otter didn’t propose any additional cuts in public school funding, instead proposing to hold schools where they are this year - after being hit with an unprecedented $128.5 million, 7.5 percent cut. But he called for cutting most state agencies an average of 2.2 percent to save $35 million - $25 million of that from the Medicaid program alone.

“It’s time to make the extraordinary measures that were born of necessity these past years into the foundation for a new concept of governance for Idaho, governance that emboldens and frees individuals and communities from the soul-crushing tyranny of entitlement,” Otter declared.

He spoke out repeatedly against increasing taxes.

“I haven’t heard one Idahoan say they want their taxes raised,” Otter told a joint session of the Legislature in his State of the State address. “If anyone wants to contribute more to state government, they’re free to do so. But this is not the time for us to coerce those payments with more taxes.”

Rep. George Eskridge, R-Dover, was pleased. “I feel good that he’s emphasizing what my citizens are emphasizing, and that is no new taxes,” Eskridge said. “He’s emphasizing a leaner government, which is what my constituents want.”

Otter made no mention of a pending proposal - sponsored by House Tax Chairman Dennis Lake, R-Blackfoot - to raise Idaho’s cigarette tax by $1.25 per pack. Asked about that after his speech, Otter said, “It depends upon where that money’s going to go.” He said he’d already talked with Lake, “and I said I’m not convinced - you’re going to have to convince me.”

Lake said the cigarette tax plan isn’t being brought to raise money, but to cut smoking and the health-care costs it imposes on the state. “I see it as two different items,” he said.

Otter also declared he’s strongly in support of a yet-to-be-unveiled school reform plan that state Superintendent of Schools Tom Luna plans to announce on Wednesday, which will include performance pay for teachers.

“Excellence should be rewarded,” Otter told lawmakers, who responded with applause.

However, Luna’s last performance-pay proposal two years ago carried a price tag in the tens of millions a year; Otter’s budget has virtually no increase in school funding to pay for such a plan.

“It’s a comprehensive change in the way we spend the money we have,” Luna said.

House Minority Leader John Rusche, D-Lewiston, decried Otter’s budget approach as “the dance of the seven veils.” He said, “I predict that there will be more (school) districts going out to the property taxpayer to ask for money, because they still have the kids and they still have the job to educate them.”

The governor’s budget assumes the state will get nearly $125 million more in revenue next year, in fiscal year 2012, than lawmakers budgeted for this year. State economists actually are forecasting another $91 million more in tax revenue beyond that, but Otter opted to set his budget lower to be “prudent.”

Then, the governor also found nearly $80 million in savings by funding employee health insurance cost increases from insurance fund reserves for a second straight year; by taking advantage of a delay in a proposed increase in state retirement contribution rates; and by getting state agencies to kick back to the general fund any unused reserves, including $8 million from the liquor division and $10 million from the permanent building fund.

He tapped the state’s last remaining savings account, a tobacco settlement fund, and is turning to hospitals and nursing homes to kick in millions to help fund the Medicaid program.

Otter also called for delaying for one year the next scheduled step-up in the grocery tax credit, saving the state $15 million next year. That means the grocery tax credit would stay at its current level - $70 per person per year for the lowest-income Idahoans, and $50 for everyone else.

There would be no raises for state employees, and furloughs could continue at some agencies.

Idaho’s colleges and universities, which have faced years of budget cuts, would face additional small reductions next year.